The vanity costs of solar energy

The fight over what Arizona Public Service pays for excess rooftop solar power is best understood in the context of the larger problem of the severe case of industrial policy disease Arizona has contracted.

Industrial policy is the belief that markets cannot be trusted to produce the businesses and jobs a polity wants or needs. So, government needs to provide a guiding or helping hand to favor some industries over others.

Of course, this assumes that government is both wiser than markets about such matters and capable of willing into existence the preferred alternative, something a couple of centuries of experience in industrial democracies casts considerable doubt about.

In Arizona, the most senseless example of industrial policy is the massive promotion and subsidization of solar energy.

Our politicians and economic development bureaucrats endlessly repeat the refrain: The sun shines here all the time. Arizona should be the Saudi Arabia of solar.

This is a brainless analogy. What happens in Saudi Arabia is that oil is extracted from the ground, put in barrels, and shipped around the world. Thereâ€™s no money to be had from putting sunshine in a barrel and shipping it around the world.

The economic payoff for Arizona is supposedly in the manufacture of solar energy components. So, we really aspire to be the Halliburton of solar, which doesnâ€™t quite have the same ring to it.

But has it really escaped the attention of our policymakers that solar component manufacturing occurs â€¦ indoors? Being a place where the sun shines all the time gives us no natural advantage for this industry. It would be like saying that all the countryâ€™s umbrellas should be manufactured in Seattle and Portland, because it rains there all the time.

Moreover, chasing a heavily subsidized industry, which solar component manufacturing is, is a foolish economic strategy.Â The sustainability of such industries is uncertain and their prospects too dependent on politics. Thereâ€™s a reason solar component manufacturers have too frequently gone from celebratory announcements to shuttered plants or plans in short order.

The one area in which having the sun shine all the time is relevant is consumption of solar energy. When solar energy is truly price competitive, Arizona will use more of it than other places.

But being an early adapter to the consumption of solar energy, before it is truly price competitive, is also economically foolish. All it does is saddle the economy with high-priced electricity. Better to let other places serve as guinea pigs and buy the stuff when the unsubsidized price makes it sensible to do so.

Arizona is locking in increasing volumes of high-priced solar electricity. The Corporation Commission has ordered regulated utilities to purchase it. The Legislature has topped up significant federal subsidies for its manufacture and consumption with state supplements.

These mandates and subsidies are economically foolish irrespective of whether they are utility-scale or excess rooftop production.

APS is proud of its commitment to the Solana solar energy plant, from which it will be purchasing power for some 30 years. But when APS made the commitment to Solana, it estimated that power from it would be 20 percent more expensive than power from a natural gas alternative. So, over 30 years, captive APS customers will be stuck with around $800 million in unnecessary electricity payments.

The rooftop solar industry is fighting, and fighting dirty, to retain its current subsidy in the form of what is called net-metering. The Corporation Commission currently requires APS to pay its retail rate to purchase excess power from residential rooftop solar panels.

So, the rooftop owner gets a retail price for what amounts to wholesale power and pays nothing for APSâ€™s distribution costs to get those electrons to the next customer. And APSâ€™s other captive ratepayers get stuck with the bill for the high-priced excess rooftop solar generation.

There is no economic case for Arizonaâ€™s current solar mania. Right now, itâ€™s a political vanity.

The least the Corporation Commission could do is to reduce the price of the vanity when it comes to rooftop solar.

(column for 10.2.13)

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